Im new to quantopian and adopted a mean reversion algo which i slightly modified. I have been examining its performance and would like to understand what the difference is between the specific returns and total return. Also what does the "Drawdown" represent?
Question: What is the difference between specific returns and total returns when you run a full backtest?
Hello Anosi,
TL:DR You should be trying to maximize specific return.
Welcome, and great question. Quantopian has implemented a risk model which estimates how much of your strategy's returns are new and attributable to stuff your strategy did, and how much of the returns are based on known effects in the market. The total returns are the raw returns of your strategy, and the specific returns are the returns left over once the risk model has stripped out all known effects. As such the specific returns represent what your strategy is doing that's unique and new.
The reason is is important is that Quantopian makes allocations to strategies which meet its risk neutral criteria. We're interested in new returns unexplained by market effects, so the more specific return you can get, the better.
You might find these resources helpful:
https://www.quantopian.com/lectures/factor-risk-exposure
https://www.quantopian.com/tutorials/getting-started
https://www.quantopian.com/tutorials/contest
Disclaimer
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.
So my code uses the QTreadableStocksUS but i still don't meet the structural requirement of tradable universe. Also what does the 'max drawdown' represent?
Apologies, I forgot to answer that part in the original question. Maximum drawdown refers to the highest peak-trough distance in your percentage returns chart. So if at one point you had made 20%, but then had a drop down to only 5% gains, that would be a 15% drawdown. Measured over your entire backtest, the maximum drawdown is just the greatest such max-min drop. Lower is better as you want a consistent strategy that doesn't rollercoaster around.
As far as tradeable universe, we're looking into that issue and will get back to you as soon as we figure it out.
Disclaimer
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.
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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.
In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.